What do LDC’s latest vacancy rates mean?

Yesterday at our 11th Retail Summit, kindly hosted by Freshfields in London, we presented facts and figures on the vacancy rates, persistence of vacancy and rental changes across 2,500 cities, towns, shopping centres and retail parks. Tomorrow I will blog the panel discussion as we had an excellent panel of experts who discussed the findings. and raised some very interesting points.

A summary of the report can be found here. LDC insight clients will receive a copy of the full report (29 pages) and welcome to follow up with any questions to me.

The Key facts were;

In H2 2014 the GB retail and leisure vacancy rate reduced from 12.3% in H2 2013 to 11.8% (-0.5%)

The number of vacant premises in the top 650 town centres numbered 25,489 (-768 during 2014). Overall across all locations tracked by LDC there were 49,538 (-993 during H2 2014) vacant premises at the end of 2014.

Wales has the highest national vacancy rate at 8%(-0.9% since on end 2013).

The best performing region by a long way is London at 7.8% (-0.3% on end 2013).

The worst performing region is now the North East at 16.8% (+0.1% on 2013).

The North West has shown the greatest improvement at -1.0% in 2014.

Shopping centres continue to have the highest overall vacancy rate at 2% (-0.2% on end 2013), followed by large centres at 12.8% (-0.6% since end 2013) and medium centres at 11.7% (-0.1% since end 2013), small town centres at 9.2% (+0.2% since end 2013) and retail parks at 8.0% (-0.9%).

Retail Parks, whilst best performing overall, see similar differences to towns and shopping centres with 550 basis points difference between the highest regional retail park vacancy in the North West (11.4%) and the lowest in the South East (5.9%).

Shopping Centre vacancy is clustered in the range between 12.9% (South East) and 19.4% (North West) with London (9.8%) being a significant outlier.

My commentary on the the facts and figures is;

“During the second half of 2014 the average GB national vacancy rate continued to improve down to 11.8% which is -0.5% on the same period in 2013. Nationally we see England and Scotland neck and neck at 11.7% and 11.9% respectively but with Wales some way back at 14.8%.

At a regional level the polarisation between the North and the South is as wide as ever with London’s vacancy rate being less than half that of the northern regions. Of the top 10 highest vacancy towns in the country all are in the North, West Midlands or Wales. Whilst we have seen an improvement from the peak in 2012 when these towns had one in three shops empty, these towns all have vacancy rates above 25% which is still one in four shops lying empty and no sign of improvement.

Not only is the level of vacancy an issue, but of more significance in my view is the persistence of that vacancy. For example in the largest towns (400+shops) with the highest vacancy rate, 70% of those vacant units have remained empty for more than a year. Such analysis at town, shopping centre and retail park level gives the most realistic view about the over supply of retail and leisure premises up and down the country. Analysis by LDC at the end of 2014 showed that of all the vacant units tracked 20% of these had been vacant for more than three years. LDC data identifies 49,538 vacant units across the country, which therefore implies that 9,908 are never going to be re-occupied. This is the equivalent of five Manchester’s lying empty!

2015 will be a significant year for retail places and we have already started to see the impact of the supermarkets’ decline with Tesco and Morrisons announcing store closures and a hold on any further development. Whilst the numbers announced to date are small beer to the totals, the significance lies with the fact that whilst traditional shops have been closing it has been the supermarkets and convenience stores that have been expanding significantly which has kept the occupancy rates balanced. The question as to who will occupy these newly vacant stores as well as those, which have been empty for a while is a very difficult one to answer positively.

In April we see the start of the business rates revaluation, which will be based on rental values as at April 2015. One thing you can be sure of is that the market will change even more rapidly in 2015 than in 2014 with some places seeing rental increases and others continuing to fall. As such creating a relevant business rate for implementation in 2017 is a challenging, expensive but also a flawed task.

One thing that is very transparent is how vacancy rates and occupancy profiles are changing location by location and this ultimately mirrors where and why businesses succeed or fail.

The granularity of LDC data shows these changes from a shop all the way up to the nation and what is clear is that polarisation is alive and well, and growing. With one in four shops lying empty in the north and just one on ten lying empty in the South the evidence is clear to see. Mind the Gap!”